Saving Using the Envelope Method

My friend Juan Bernardo Patino (owner of Stock Market for Pinoys) once introduced me to the envelope method for saving. Basically, you just get one envelope and assign to it the funds that you intend to save for a specific purpose. If you have varying expenses that you need to save for, then you need an array of envelopes with each one assigned to just one expense. So if you have to pay for Electricity you get one envelope and assign to it "Electricity Bills". Then if you have to pay the water company you get another envelope and jot down "Water Bills" on it. And so on and so forth...

Because I overspent this September 2014, my siblings and my sister's best friend concurred that I need to use the envelope method. So here is the breakdown of my savings plan using the envelope method.

In terms of allocation, this would mean that for every 100 pesos I earn:

- 40% or 40 pesos will go to my Medicine envelope
- 20% or 20 pesos will go to my Food and Other Living Expenses envelope
- 20% or 20 pesos I can spend freely (put in the Free Spending envelope)
- 10% or 10 pesos goes to savings - not to be touched (put in the Savings envelope)
- 10% or 10 pesos will go to the Emergency Fund (put in the Emergency Fund envelope)

To make sure that I stick to my savings plan, my younger brother will hang on to the money for me. This means that whenever I earn anything, I have to turn over the gross income to him and we will separate the funds according to the envelope it belongs to. I also have to keep a small notebook into which I will write every expense that I have paid for. That way, I know exactly where I spent what and when. My younger brother acts as my "check and balance" so that he can help me control my spending. Also, he serves as my banker because I cannot take money from the envelopes without informing him first.

Of course, there are risks even with this method. For example, I am notorious for not listing down each and every expense I've incurred so there may be discrepancies. So that's my lookout. The money might also be stolen from my younger brother's place even if we put it in a locked cash box (after all, people are only human). I might also get into emergencies that might suck the life out of my emergency fund meaning we might be forced to get money from the other envelopes to make up the difference.

But saving this way is better than not doing anything and it's simple enough to follow regularly. So for now we stick to this method so that I don't go overbudget with my spending on a regular basis.

Making Mistakes is Good

Someone once said that “you learn more when you make mistakes than when you get everything right”. I forget who said that but it’s just as true today as when I first heard it. Today was a good example of that.

I was trying to do something at work and my boss was fortunately online while I was doing it. I kept making mistakes and I was getting frustrated until my boss stepped in and pointed out what I was doing wrong. Then a light bulb flashed in my head and I realized that the experience of making all those mistakes is just as valuable (if not more valuable) than the experience of getting everything right the first time. The value to me this time was that I was able to see the process at work from the point of view (POV) of the user of the system. If I were an instant expert who could see everything only from the point of view of the developer of the system, I probably would not have that kind of insight.

In my case, I was able to see where the system would wind up confusing the end user. There are many ways that an end user would wind up getting confused as he goes through this process and I saw some of those pitfalls. Fortunately for me, that is important because it serves as useful material for my work blog. I could point out to the readers where they might make mistakes but more importantly, to acknowledge that no one is perfect and even the most intelligent of people do make mistakes too when trying something new.

If you start to feel that you’re never going to get your work right and that everything you are doing seems futile, don’t give up. You may eventually get your own light bulb flashing in your brain and you will then realize that the effort you put in is really worth it in the end. And if the process of learning does become so tedious, tiring and discouraging, don’t give up – most likely the solution is within reach and you just have to be persistent about finding it.

My First Try at Investing in a Mutual Fund

My First Try at Investing in a Mutual Fund

My Financial Advisor at Sunlife (Sasha So Seng Yu) helped me buy into a Sunlife mutual fund lately. The money I used was initially supposed to go into a Sunlife insurance plan but due to various reasons I backed out of the insurance idea. Then Sasha said I can always invest in a mutual fund because it gives good returns anyway although there’s no insurance coverage. So I gave her written authorization to process my entry into mutual funds, signed the necessary documentation and now I have 1937 shares in the Equity Fund.

Although I knew that buying into equities is a big risk (because the returns can even be zero over time) I agreed to it because a) I trust Sasha’s judgement and b) I know also that the opposite is true, that the returns can be 20% over time or even more. I remember a guy friend of mine telling me that for decades he owned these shares of stock that were practically worthless and he merely held on to them for sentimental reasons – then all of a sudden the shares became profitable and he cashed in. Sasha did make it a point to tell me that I can still withstand the risk because I’m only 40 and though there may be some bad years down the line the odds are on my side that I will profit from my mutual fund investment. She also stressed that a mutual fund is good for a long term investment POV.

I’m still learning about how mutual funds work as I go. Today I learned how to find the fund value, by following Sasha’s instructions. The value of putting my money in a mutual fund, for me, is that a Fund Manager will be managing it on my behalf, because I really have no experience in investing in stocks. I do have one friend who let me peek at her stock shares and she was 4000 pesos in the red. She says it’s been that way for months now. To me, that’s a pretty big loss though of course she might eventually recover everything if the market turns in her favor. So that’s why I decided to invest in a mutual fund instead of being a Lone Ranger and doing every stock transaction by myself.

Sasha also taught me about the Cost Average Method which basically means investing in the mutual fund regularly whether the market is up or down. The idea behind this Method is that eventually the average value of your investment evens out to around 20% if the market doesn’t crash over time. I did my homework about the Cost Average Method with help from my friend and my brother so I trust that this is the right way to go. All things considered it’s still preferable to a regular savings account in a bank where your money will not profit as much. So I assume that I did the right thing by trusting Sasha’s judgment about putting my money in equities, for the long term.

The Problem with People's Expectations

The main problem when people find out I am into business is that they think that I'm all about money. True, money is part of why I go into business but it's not the whole picture. The main reason I go into business is that I believe I have something valuable to offer the public that they really need. That's why I'm very picky as to what businesses I go into or patronize myself.

Like Robert Kiyosaki said, you first need to figure out whom  you could serve with your business even before you set up the company itself. If you have a good market for your service then your business stands a good chance of surviving amidst competition. If you are not thinking about serving anyone with your business and are obsessed with just the idea of earning money, then your business will probably not survive.

But then, some people will always assume that I'm all about money and I've come to expect that reality. I know that no matter what I say such people will always make that assumption for their own reasons. The good thing is that I know I am doing good by serving people through my businesses. And that's the bottom line, isn't it?

Why I'm in Business

I wasn't born into a rich family. That alone gave me the hunger to make the most of my life, to become someone to reckon with, to be someone that other people would say is a hard worker. I want to be able to reach my life goals and become rich - it's that simple. But I recognize that there are wrong ways and right ways to reach those goals to become rich. That's why I try to surround myself with people who think the same way, who are also aspiring to become someone special through hard work.

These people whom I surround myself with give me good advice and point out where dangers lurk that can derail me from my goals. In turn, I try to help them too with my own wisdom (whatever little I may have) and watch out for them in case there are dangers lurking in their own life. It's a give and take relationship that I hope will last for as long as we are alive.

True, there are those who went on ahead of me and are now nowhere that I know of. Others have passed on and I still miss them. But I keep my eyes on the goal because there are still some friends here with me in the here and now. And that's what motivates me to wake up every day to a new beginning - because I value these people who will help me reach my life goals. And that is partly what keeps me sane daily.